00-15572. Entergy Power Marketing Corporation, et al., Order Granting Complaint and Rejecting Related Service Agreements, Denying Complaint and Accepting Related Service Agreement, and Providing Clarification of Order No. 888

Issued June 15, 2000.

Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt Hebert, Jr.

In this order, we address two complaints that involve the exercise of the right of first refusal provisions established in the Order No. 888 ^[1] pro forma tariff.^[2] In one complaint (Docket No. EL00-46-000), a customer alleges that the transmission provider violated its open access transmission tariff by attempting to require the customer to exercise its right of first refusal too early. In the other complaint (Docket No. EL00-53-000), a potential customer alleges that the transmission provider permitted its existing customer to exercise its right of first refusal too late. We now recognize that the right of first refusal provisions of the pro forma tariff are not sufficiently clear and provide clarification to the parties to these proceedings and of Order No. 888, as discussed below. As a result, we grant the complaint in Docket No. EL00-46-000 and reject the related service agreements and deny the complaint in Docket No. EL00-53-000 and accept for filing the related service agreement, as discussed further below.

Background

Complaint

Entergy Power Marketing Corporation (EPMC) currently has a one-year firm transmissions service agreement with Southwest Power Pool, Inc. (SPP) to transmit 600 MW. The term of the agreement is January 1, 2000 to December 31, 2000. On January 24, 2000, SPP informed EPMC that SPP had received competing requests for EPMC's transmission capacity and demanding that EPMC exercise its right of first refusal under section 2.2 of the Open Access Transmission Tariff (OATT). EPMC responded with a letter claiming that it had, under section 2.2 of SPP's OATT, until the end of the contract term to exercise its right of first refusal. EPMC maintained that it had until 60 days before the expiration of its contract (referencing section 17.1 of the OATT) to make its request for renewal of service. Upon receiving EPMC's response, SPP accepted the request for the capacity made by another customer, Tenaska Power Services Company (Tenaska).

On February 16, 2000, EPMC filed its complaint asking the Commission to: (1) Declare that SPP had violated its OATT by requiring EPMC to make an early exercise of its right of first refusal; (2) require SPP to hold open EPMC's right of first refusal until at least October 31, 2000; and (3) direct SPP to refrain from making any further requests that EPMC exercise the right of first refusal before October 31, 2000.

Notice of EPMC's complaint against SPP was published in the Federal Register, 65 FR 9258 (2000), with comments, protests, or motions to intervene due on or before March 7, 2000.

A timely answer was filed by SPP. SPP states that the complaint presents an issue of first impression to the Commission as to when a customer is required to inform the transmission provider whether it will exercise its right of first refusal. SPP suggests that if the Commission grants EPMC's complaint it will be encouraging transmission capacity hoarding by transmission customers. SPP asks that the Commission dismiss EPMC's complaint.

Timely motions to intervene in support of the complaint were filed by ONEOK Power Marketing Company. Timely motions to intervene in support of SPP's position were filed by Enron Power Marketing, Inc. Duke Energy Corporation, jointly by Tenaska Power Services Company and Coral Power, LLC, and by Reliant Energy Services, Inc. A notice of intervention, raising no issues, was filed by the Arkansas Public Service Commission. Timely motions to intervene, raising no issues, were filed by Arkansas Electric Cooperative Corporation, Conoco Global Power, Duke Energy Trading and Marketing, LLC, Dynegy Power Marketing, Inc., the Municipal Energy Agency of Mississippi and Lafayette Utilities system, the Oklahoma Municipal Power Authority, Southwestern Electric Power Company and Public Service Company of Oklahoma. An untimely motion to intervene was filed by Ameren Services Company.

EPMC filed an answer to SPP's answer to the complaint. Tenaska filed a motion to expedite the complaint proceedings and to reject EPMC's answer to SPP's answer. SPP supports Tenaska's motion for expedition.

Service Agreements

On March 7, 2000, in Docket No. ER00-1829-000, SPP filed service agreements under its OATT for service, using the disputed capacity, to Tenaska.

Notice of SPP's filing was published in the Federal Register, 65 FR 14,557 (2000), with comments, protests, or motions to intervene due on or before March 28, 2000.

EPMC filed a timely motion to intervene and protest claiming that the service agreements are an attempt to sell capacity that is subject to EPMC's right of first refusal and are thus a violation of SPP's tariff. EPMC asks that this proceeding be consolidated with its complaint.

Tenaska filed a timely motion to intervene in support of SPP's filing.

On August 26, 1999, Texas-New Mexico Power Company (TNMP) submitted to Public Service Company of New Mexico (PSNM) a request for firm point-to-point transmission service under PSNM's OATT for the period from January 1, 2000 to December 31, 2001. After receiving TNMP's request for transmission service, PSNM Transmission informed TNMP that it had no Available Transfer Capability (ATC) to satisfy TNMP's request, but stated that a 28 MW contract with PSNM Marketing was due to expire on December 31, 1999 and, if PSNM Marketing did not exercise its right of first refusal to extend the contract, PSNM Transmission would be able to provide the requested transmission service.^[3]

PSNM Transmission notified PSNM Marketing of the competing transmission request and asked PSNM Marketing to confirm or deny that it would extend its transmission agreement. However, PSNM Marketing indicated that it needed additional time to consider whether or not to exercise its right of first refusal to extend the contract and match TNMP's contract term. Consequently, PSNM Transmission held TNMP's request first in the queue subject to PSNM Marketing's right of first refusal.

On December 17, 1999, PSNM Marketing exercised its right of first refusal by matching TNMP's request for 28 MW of transmission service of two years.

Service Agreement

On February 28, 2000, PSNM submitted, in Docket No. ER00-1711-000, an executed service agreement between PSNM Transmission and PSNM International under PSNM's OATT. Under the service agreement, PSNM Transmission will continue to provide PSNM Marketing (through an assignment from PSNM International) 28 MW of firm point-to-point transmission service. PSNM requests an effective date of January 1, 2000.

Notice of PSNM's filing was published in the Federal Register, 65 FR 12,984 (2000), with comments, protests, or motions to intervene due on or before March 21, 2000.

On March 21, 2000, TNMP filed an intervention, protest, request for investigation and motion for consolidation with its complaint in Docket No. EL00-53-000. TNMP argues that PSNM Marketing (through an assignment from PSNM International) was able to retain the transmission capacity as a result of PSNM Transmission acting in a manner that was unjust, unreasonable, unduly discriminatory and preferential to its affiliate. According to TNMP, the issue raised in its complaint are factually identical to those raised in its protest and the two proceedings should be consolidated.

Complaint

On March 15, 2000, TNMP filed, in Docket No. EL00-53-000, a complaint against PSNM alleging misconduct in PSNM's treatment of TNMP's application for 28 MW of firm point-to-point transmission service. TNMP argues that PSNM Transmission administered its OATT in a manner that is unjust, unreasonabale and unduly discriminatory and preferential to its corporate affiliate. Specifically, TNMP argues that PSNM Transmission violated section 2.2 of its OATT by allowing its affiliate, PSNM Marketing, an unreasonable amount of time to decide whether to exercise a right of first refusal under its existing transmission contract. TNMP argues that it has suffered economic harm as a result of PSNM Transmission's actions and that PSNM Transmission's corporate affiliate was a direct beneficiary of PSNM Transmission's action. TNMP requests that the Commission require PSNM Transmission to release the transmission capacity to TNMP or, in the alternative, TNMP should be compensated for its lost opportunity.

Section 2.2 provides that an existing firm transmission customer has a transmission reservation priority that ÿ7Eÿ7E``may be exercised at the end of all firm contract terms of one year or longer.'' According to TNMP, PSNM Marketing and PSNM Transmission interpret this to mean the right of first refusal may be exercised up until 11:59 p.m. on December 31, 1999, the last minute of the last day of the existing contract term. TNMP disputes this interpretation. It asserts that the OATT does not intend for the holder of a right of first refusal to be able to exercise this right, at its discretion, when a competing transmission request has been submitted.

TNMP argues that while it recognizes that the Commission, in Order No. 888-A, rejected requests to establish specific procedures for exercising the right of first refusal, any interpretation of section 2.2 must be just and reasonable. TNMP points to section 17.7 of the OATT for support that a right of first refusal must be exercised in a reasonable time period. According to TNMP, section 17.7 contemplates a 30-day time period in which to exercise rollover rights in the context of a request for extension of the commencement of transmission service under the OATT. TNMP argues that there is no basis to distinguish the circumstances in section 17.7 from those in section 2.2. Because PSNM Marketing did not respond in a timely manner, TNMP argues that the transmission capacity should be released to it.

Notice of TNMP's complaint was published in the Federal Register, 65 FR 15,630 (2000), with comments, protests, or motions to intervene due on or before April 14, 2000.

PSNM filed an answer and requests that the Commission dismiss TNMP's complaint because TNMP has failed to demonstrate that it violated its OATT or acted in an unduly discriminatory manner. PSNM maintains that the commission expressly declined to adopt specific procedures for exercising the right of the first refusal under section 2.2 when asked to do so on rehearing of Order No. 888. PSNM states that its actions regarding TNMP's request for transmission service were undertaken in strict compliance with section 2.2 of the OATT. According to PSNM, section 2.2 clearly states that a transmission customer with a right of first refusal may exercise that right at the end of the contract term. PSNM states that PSNM Marketing exercised its right and ultimately agreed to match TNMP's competing bid within the time frame permitted by section 2.2. ^[4] PSNM states that section 2.2 does not provide for any different treatment in the event of a competing bid by another transmission customer; nor does it enable the transmission provider to force a customer taking service subject to a right of first refusal to make its decision prior to the expiration of its contract. Therefore, PSNM argues that PSNM Transmission has no authority under section 2.2 to compel PSNM Marketing or any other long term firm transmission customer to decide, in advance of the expiration of the contract, whether to exercise a right of first refusal.

PSNM also states that the Commission should reject TNMP's attempt to apply section 17.7, which PSNM points out, applies to the different issue of extensions of time for the commencement of service under the OATT.

TNMP filed an answer to PSNM's answer to the complaint.

Discussion

Procedural Matters

Pursuant to Rule 214 of the Commission's Rules of Practice and Procedure, ^[5] the notice of intervention and the timely, unopposed motions to intervene serve to make the entities which filed them parties to the proceedings in which they intervened. Further, we find good cause to grant the untimely motions to intervene filed in these proceedings, given the interests represented, the early stage of these proceedings, and the apparent absence of any undue prejudice or delay.

Rule 213(a)(2) of the Commission's Rules of Practice and Procedure, 18 CFR 385.213(a)(2) (1999), prohibits the filing of an answer to an answer unless otherwise permitted by the decisional authority. We are not persuaded to allow the proposed answers, and accordingly will reject the answers.

Reservation Priority Under Section 2.2 of the OATT

We now recognize that the timing provisions governing the right of first refusal in section 2.2 of the pro forma tariff are not sufficiently clear as illustrated by the two complaints before us. Because of these complaints, we believe that clarification is necessary to provide for a more orderly and consistent process. Therefore, we provide the following clarification as to the meaning of sections 2.2 and 17.1 of the pro forma tariff and as to when the right of first refusal may be exercised. ^[6]

Section 2.2, Reservation Priority for Existing Firm Service Customers states:

Existing firm service customers (wholesale requirements and transmission-only, with a contract term of one-year or more), have the right to continue to take transmission service from the Transmission Provider when the contract expires, rolls over or is renewed. This transmission reservation priority is independent of whether the existing customer continues to purchase capacity and energy from the Transmission Provider or elects to purchase capacity and energy from another supplier. If at the end of the contract term the Transmission Provider's Transmission System cannot accommodate all of the requests for transmission service the existing firm service customer must agree to accept a contract term at least equal to a competing request by any new Eligible Customer and to pay the current just and reasonable rate, as approved by the Commission for such service This transmission reservation priority for existing firm service customers is an ongoing right that may be exercised at the end of all firm contract terms of one year or longer. (Emphasis added).

Section 17.1, Procedures for Arranging Firm Point-to-Point Transmission Service states, in relevant part:

A request for Firm Point-To-Point Transmission Service for periods of one year or longer must contain a written Application to: [Transmission Provider Name and Address], at least sixty (60) days in advance of the calendar month in which service is to commence.* * * *. All Firm Point-To-Point Transmission Service requests should be submitted by entering the information listed on the Transmission Provider's OASIS. . . . (Emphasis added).

The intent of section 2.2 is to provide the existing long-term firm customer a priority over competing requests for transmission service upon expiration, rollover or renewal of the existing customer's contact. While section 2.2 provides that the reservation priority may be exercised at the end of the contract term, section 17.1 sets forth the reservation procedures that customers must follow arranging firm point-to-point transmission service. By exercising a right of first refusal an existing transmission customer is, in effect, arranging a new long-term firm point-to-point transmission service. Consistent with the reservation procedures in section 17.1, we clarify that the pro forma tariff requires customers to notify the transmission provider that they are exercising their right of first refusal at the time they tender their request for the new service term, which must be no less than 60 days prior to the date the existing contract ends and the new service term commences. This procedure should provide sufficient protection to existing transmission customers (our original rationale for establishing a right of first refusal) as well as provide a reasonable and consistent notice prior for all transmission reservations. Therefore, we clarify the phrase “may be exercised at the end of all firm contract terms” in section 2.2 to mean sixty (60) days in advance of the date on which the contract expires, rolls, over or is renewed.

Because the interrelationship between section 2.2 and section 17.1 of the pro forma tariff was not clear prior to this order, we find that PSNM's interpretation of it OATT, that a transmission customer had until the end of its contract to execute its reservation priority under section 2.2, was not unreasonable when made. Thus, under these circumstances, we conclude that PSNM's customer (PSNM Marketing) properly exercised its right of first refusal. We, therefore, deny TNMP's complaint (Docket No. EL00-53-000) and accept for filing the service agreement (Docket No. ER00-1711-000) that renews the transmission service contract between PSNM and the existing customer—PSNM Marketing (through an assignment from PSNM International), to be effective on January 1, 2000, as requested.^[7]

We will grant EPMC's complaint against SPP (Docket No. EL00-46-000), as discussed below. We find that SPP's OATT does not depart from the pro forma tariff and, as a result, EPMC has the right to exercise its right of first refusal until the end of the contract term. However, because the end of the contract term is more than sixty days from the date of this order, we will require EPMC to comply with the interpretation of section 2.2 and section 17.1 announced in this order, i.e., that the existing customer's right to execute its reservation priority at the end of the contract term, means that the existing customer, here EPMC, may exercise its right of first refusal no later than 60 days prior to the date the existing contract ends and the new service term commences, which, in this case, would be October 31, 2000. SPP cannot compel EPMC to exercise its right of first refusal and cannot award its capacity to a competing customer prior to that date. We, therefore, will reject the service agreements filed by SPP in Docket No. ER00-1829-000 without prejudice to their being refiled in the event that partial service can be provided or if EPMC does not exercise its right of first refusal for the contested transmission capacity.

With the issuance of this order we are putting the industry on notice that, effective immediately (i.e., for contracts expiring August 31, 2000 and after), no less than sixty (60) days prior to the date of existing contract ends and the new service term commences, the existing long-term customer must make an application for its new service term following the usual pro forma tariff procedures and notify the transmission provider that it wishes to exercise its reservation priority (right of first refusal) under section 2.2 of the pro forma tariff. To assure that existing long-term transmission customers are aware of this requirement, every transmission provider must update the business practices section on its OASIS to reflect the following clarification: “Any existing long-term customer that wishes to exercise its reservation priority must make an application for its new service term following the usual pro forma tariff procedures and notify the transmission provider, no less than sixty days (60 days) prior to the date an existing long-term contract ends and the new service term commences, that the long-term transmission customer wishes to exercise its reservation priority (right of first refusal) under section 2.2 of the pro forma tariff.” In addition transmission providers should notify present customers of the updated business practices. Finally, we will direct the Secretary to publish a copy of this order in the Federal Register. We also want to emphasize that this clarification applies to the pro forma tariff and the OATTs of all transmission providers unless and until a transmission provider has filed different procedures for exercising the right of first refusal that are consistent with or superior to the pro forma tariff.

The Commission Orders

(A) All answers to answers filed in these proceedings are hereby rejected.

(B) EPMC's complaint is hereby granted, as discussed in the body of this order.

(C) TNMP's complaint is hereby denied, as discussed in the body of this order.

(D) PSNM's service agreement filed in Docket No. ER00-1711-000 is hereby accepted for filing to be effective on January 1, 2000, as discussed in the body of this order.

(E) SPP's service agreements filed in Docket No. ER00-1829-000 are hereby rejected, as discussed in the body of this order.

(F) PSNM is hereby informed of the rate schedule designations in Attachment A.

(G) The Secretary is hereby directed to published a copy of this order in the Federal Register.

By the Commission.

David P. Boergers,

Secretary.

Attachment A

Public Service Company of New Mexico Rate Schedule Designations

[Docket No. ER00-1711-000]

[Effective: January 1, 2000]

Designation	Other party/description
(1) Service Agreement No. 130 under First Revised Tariff, Vol. No. 4 (Supersedes Service Agreement No. 104)	PSNM international business development.
(2) Supplement No. 1 under Service Agreement No. 130 under First Revised Tariff, Vol. No. 4	Service specifications.
(3) Eighth Revised Sheet Nos. 106A-106F (Supersedes Seventh Revised Sheet Nos. 106A-106F)	Index of customers.
(4) Nineth Revised Sheet Nos. 106 (Supersedes Eighth Revised Sheet No. 106)	Index of customers.

Footnotes

1.  Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities: Recovery of Standard Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21,540 (1996), FERC Stats. & Regs. ¶ 31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12,274 (1997), FERC Stats. & Regs. ¶ 31,048 (1997), order on reh'g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC ¶ 61,046 (1998).

2.  We also address two related filings of service agreements that were entered into based on the parties' understanding of when the right of first refusal may be exercised.

3.  Pursuant to this Commission's separation of functions requirements, PSNM Transmission performs PSNM's transmission function, while PSNM Marketing performs PSNM's wholesale merchant function. PSNM Transmission and PSNM Marketing are each departments of PSNM. PSNM Marketing has firm transmission rights on PSNM's transmission system through assignment from PSNM International Business Development (PSNM International).

4.  Contrary to TNMP's assertion, PSNM states that it is unlikely that a customer with a right of first refusal will exercise its right in the last minute of the last hour of the last day of the contract since the customer with the right will need to plan its business just as the party seeking service will need to do. PSNM's Answer at 14.

5.  18 CFR 385.214 (1999).

6.  This clarification addresses the requirements of our pro forma tariff when customers are exercising the right of first refusal. It does not consider whether and to what extent a particular pre-Order No. 888 agreement imposes other obligations on existing customers who are converting from service under a bilateral agreement to service under the tariff.

7.  Central Hudson Gas & Electric Corporation, 60 FERC ¶61,106, order on reh'g, 61 FERC ¶61,089 (1992).